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Gail Kalinsoki/Commercial Property Executive - Four months after Brookfield Property Partners came courting GGP Inc. and was initially spurned, Chicago-based mall owner GGP has accepted Brookfield’s offer to acquire the remaining portion it didn’t already own in a deal valued at about $15 billion.

“It was just a matter of time, they already own so much of it,” Jeff Green, a retail consultant and president & CEO of Jeff Green Partners in Phoenix, told Commercial Property Executive.

Brookfield, one of the world’s largest commercial real estate companies and the real estate arm of Toronto-based Brookfield Asset Management, is seeking to acquire the remaining 66 percent stake in GGP, the second-largest mall owner in the United States. The announcement of a definitive agreement comes after Brookfield made an unsolicited bid in November for GGP.

When GGP rejected that offer, Green told CPE it was “just the first volley” and predicted Brookfield would have to sweeten the deal. This week, Green said he wasn’t surprised about the proposed acquisition.

“I’m not sure if in fact it’s really a better deal as much as (GGP) waited for some time to pass to see if someone stepped up,” Green said. With no other suitors, “there certainly is more urgency to figure out a solution and Brookfield is probably the only solution as they already own so much of it,” he added.

A COMPELLING TRANSACTION

The deal, which still must be approved by GGP shareholders, calls for GGP shareholders to receive $23.5 a share in cash, or either one Brookfield unit or one share of a new U.S. REIT that will be formed for each GGP share owned. The offer is subject to proration based on aggregate cash payment of roughly $9.3 billion, up from $7.4 billion in the November offer that also suggested shares paid at $23.0 per share.

“This is a compelling transaction that enables GGP shareholders to receive premium value for their shares and gives them the ability to participate in the long-term upside of their investment,” Brian Kingston, Brookfield Property Partners CEO, said in a prepared statement. “We are pleased to have reached an agreement and are excited about combining Brookfield’s access to large-scale capital and deep operating expertise across multiple real estate sectors with GGP’s portfolio of irreplaceable retail assets.”

GGP owns about 125 high-quality retail properties comprising approximately 121 million square feet of space in 40 states. With a total enterprise value of $41.1 billion as of Dec. 31, GGP’s assets include Water Tower Place, Chicago; Tysons Galleria, McLean, Va.; Ala Moana Center, Honolulu; Perimeter Mall, Atlanta; The Woodlands Malls in Woodlands, Texas; and Fashion Show and Grand Canal Shoppes, both in Las Vegas.

A GLOBAL LEADER

The combined company would have an ownership interest in approximately $90 billion in total assets and an annual net operating income of more than $4 billion, making it one of the world’s largest commercial real estate enterprises. If approved by GGP shareholders, the deal is expected to close early in the third quarter.

GGP’s Special Committee, formed in November after receiving Brookfield’s initial proposal, reviewed the new offer along with input from its independent advisors and unanimously recommended shareholders approve the transaction.

Daniel Hurwitz, lead director & chairman of the special committee, said the special committee, “determined that Brookfield’s improved proposal, which includes an increase in the cash portion of the consideration and the ability to receive shares in a newly listed REIT entity, provides GGP shareholders with a certainty of value, as well as upside potential through ownership in a globally diversified real estate company.”

The Brookfield-GGP deal comes at a time of increased consolidation among shopping center and mall owners. In December, Unibail-Rodamco SE, Europe’s largest listed commercial property group, said it was buying Australia’s Westfield Corp. for nearly $16 billion to create a global shopping center owner with a gross market value of $72.2 billion and 104 assets across 27 of the world’s top markets. Westfield has interests in 35 shopping centers in London and the U.S. That deal is expected to close in the second quarter.

Jon Harris/The Morning Call - Some have described it as an apocalypse. Others prefer the term disruption. The more optimistic among us call it an evolution.

Terminology aside, the situation is pretty clear: The retail world is changing quickly, and its makeover won’t stop anytime soon.

Consider: E-commerce sales accounted for about 10 percent of all U.S. retail sales at the end of last year, up from around 6 percent in 2012, according to U.S. Commerce Department figures.

“It doesn’t sound like much, but it’s huge because of the effect it has on brick and mortar,” said retail expert Jeff Green, owner of Jeff Green Partners in Phoenix.

That percentage is forecast to grow quickly in the years ahead. Take it from research and advisory firm Forrester, which expects online sales to account for 17 percent of all U.S. retail sales by 2022.

It means the upheaval could just be getting started. In Outlook 2018, The Morning Call takes a closer look at the changing retail world. It’s a transformation that started gradually — the first purchase on the internet with a credit card was back in 1994 — but then suddenly, getting to the point where the once-dominant department store industry is shuttering hundreds of stores and turning to possibly its best remaining asset: its real estate.

Many sectors, however, have avoided the disruption. For example, home improvement stores still provide customers with in-person — and often much-needed — assistance, while off-price retailers such as Ross and T.J. Maxx remain one of the thorns in the sides of traditional department stores. In addition, even with Amazon’s purchase of Whole Foods Market last year, online grocery shopping remains relatively nascent, though experts expect that category to heat up in the next several years.

“Everyone is scared to death of Amazon, because they are a gorilla,” said Ron Friedman, a retail expert at accounting and advisory firm Marcum. As it is already, Amazon accounts for around one-third of all e-commerce spending.

As retail has evolved, so have the jobs.

Just look at the Allentown-Bethlehem-Easton metro area’s job figures from December, in the thick of the holiday shopping season. That month, the region’s retail trade sector had 40,800 jobs, down from 42,100 a year earlier, according to state Department of Labor & Industry. Meanwhile, the area’s booming transportation-and-warehousing sector had 29,400 jobs in December, up from 27,400 a year earlier.

The reason boils down to consumers increasingly trading brick-and-mortar for click-and-order. As online orders have surged, Amazon and Walmart have become two of the Lehigh Valley’s largest employers, each employing more than 2,000 workers across their area fulfillment centers. Its strategic location, close to major population centers, is one reason the Lehigh Valley is at the intersection of the retail changes, one where an in-store retail worker here could handle virtual orders at a fulfillment center instead and make more money — roughly $15 an hour in some cases.

With the boom in the sector, however, the pool of available warehouse workers has grown increasingly tight. The competitive job market has motivated many Lehigh Valley warehouses, where basic English is typically a requirement, to loosen some of those standards and tap into a plentiful supply of non-native speakers, though much work remains on that front.

All these changes have led to ongoing transformations in retail real estate.

While downtown retailers are making changes to compete, they also benefit — in fully developed downtowns, anyway — from a healthy array of dining and entertainment options, which help drive foot traffic. Meanwhile, shopping center owners are adapting by making changes and, often, turning to grocery stores as anchors. Many shopping malls also are trying to adapt, diversifying their tenant mix, lessening their exposure to struggling department store chains and, in some cases, turning inside out to resemble a shopping center with more exterior entrances.

Friedman expects the mall of the future to look like Westfield Century City, a 1.3-million-square-foot mall in Los Angeles that received a two-year, $1 billion makeover. The refreshed facility features a plethora of restaurants, an outdoor event space and a health clinic. Following the redevelopment, about 90 percent of its stores are new, including an Amazon Books location.

While malls such as Westfield Century City are well-prepared for the future, there will be plenty of low-performing shopping centers that don’t make the cut, likely going the way of the shuttered Schuylkill Mall near Frackville. Roughly one-quarter of the nation’s malls could close by 2022, by one estimate.

The tough part for these centers: They’re trying to remake themselves in an over-stored environment, one in which brick-and-mortar must downsize to survive.

Consider this: There are about 2,360 square feet of shopping center space in the United States for every 100 Americans, according to CoStar Group. By comparison, that figure is about 550 square feet in the United Kingdom.

Even with additional contraction, the National Retail Federation is expecting a strong year in 2018. The world’s largest retail trade association expects retail industry sales to grow between 3.8 and 4.4 percent this year, compared with 2017. That forecast is boosted by anticipated online and other non-store sales growth of between 10 and 12 percent.

On the association’s Feb. 8 annual forecast call, NRF officials said they expect strong consumer confidence — and tax cuts — to help continue the momentum for the retail industry, coming off a strong holiday season. The association also pointed to a Wharton School analysis, which showed the retail trade industry will save more than $170 billion as a result of the Tax Cuts and Jobs Act. The savings should allow retailers to redirect capital to employees and other aspects of their business, they said.

“The retail industry, while continuing to transform, is alive and well,” NRF President and CEO Matthew Shay said on the call.

While these are uncertain times for retailers, Friedman also described them as “really exciting times.” Some retailers will seize new opportunities, while others will not.

Even though the day and age of the gig economy has begun, both Friedman and Green said there is still room for brick-and-mortar, though the industry needs to resize and know its customers better than it ever has. Some well-known brands are opening their own stores. For example, Montgomery County workplace furniture and textile maker Knoll Inc. in January opened a home design shop in Los Angeles, its second direct-to-consumer retail location following the success of its New York City shop.

In addition, some physical locations can be repurposed to serve e-commerce. In fact, Walmart is converting up to a dozen of the 63 Sam’s Clubs it closed into e-commerce fulfillment centers, a move that will boost the retailer’s delivery of online orders.

The digital world, however, is giving new life to defunct retailers, such as Circuit City. A New York businessman who bought the Circuit City brand has vowed to launch an e-commerce website, potentially followed by kiosks and showrooms.

So, moving forward, Shay said the NRF expects to see more of the same in the industry, with retailers finding ways to stay competitive by reallocating resources from nonproductive investments to more promising ones.

Jon Harris/The Morning Call - A little more than a week ago, signs from the shuttered J. Crew store sat on the sidewalk behind a 1-800-Got-Junk? truck, waiting to be loaded and hauled away from Lehigh Valley Mall’s outdoor lifestyle center in Whitehall Township.

Just days later, a barricade in front of the vacant store was already rising, with a construction crew and lifts working behind a waist-level orange fence to get the spot ready for its next tenant.

Out with the old, in with the new.

This is not an unfamiliar scene at the area’s premier mall. While Lehigh Valley Mall’s performance remains strong, it has steadily been hit — as most malls have — with store closures in a rapidly evolving landscape in which many retailers are shrinking their brick-and-mortar footprint or going out of business.

But unlike many other shopping centers, the mall — backed by a strong ownership group that includes the country’s largest mall operator — has been able to fill its vacancies quickly, boasting an occupancy rate that easily exceeds the national rate of 93.1 percent recorded by the International Council of Shopping Centers.

“We, like everybody else, are not immune to everything that’s going on, but I think what we’re able to do is we’re able to recover,” said John Ferreira, Lehigh Valley Mall manager. “You have people come and go. You always have people come and go here, but we’re able to find replacements and the replacements that we find are retailers, they’re restaurants, and now they’re more experiential types of activities or stores that will attract today’s customer.

“And we’ve been pretty successful at doing it,” he said.

Fighting the headwinds

The situation won’t get any easier moving forward, however, as e-commerce continues to gobble up sales, causing a dramatically overstored U.S. retail climate to correct itself. The correction could be significant: One report last year from Credit Suisse said roughly one-quarter of the nation’s malls could close by 2022.

The centers most at risk, according to Green Street Advisors, are the low-performing malls, of which the Lehigh Valley has several that are trying to adapt by adding more exterior entrances, freshening up their 1980s-like appearance and bringing in tenants such as local restaurants, gyms or even a trampoline park.

Those malls, such as South Mall in Salisbury Township, Palmer Park Mall in Palmer Township and Phillipsburg Mall in New Jersey, face a tough road. While South Malland Palmer Park are now under the control of their own respective hands-on ownership groups, both count the bankrupt Bon-Ton as an anchor and South Mall’s other anchor, Stein Mart, has assembled a team to “identify potential strategic alternatives.” Meanwhile, the Phillipsburg Mall is in the midst of losing its Bon-Ton, putting it another anchor down and forcing its owner to weigh alternatives for the property.

The 1.18 million-square-foot Lehigh Valley Mall is far from a low-performing mall, though some of its numbers were slightly lower in 2017 than in years past. One retail expert believes those figures could decline further following the 2019 holiday shopping season as the retail disruption continues, but the mall is fighting those headwinds by looking at ways to diversify and weighing an expansion that would give it greater visibility from busy MacArthur Road and cement its position as the area’s top shopping hub.

As of Dec. 31, sales per square foot at the mall were $561, down from $570 a year earlier, according to a U.S. Securities and Exchange Commission filing from Pennsylvania Real Estate Investment Trust, which co-owns Lehigh Valley Mall with Simon Property Group. In addition, Lehigh Valley Associates — the formal name of the mall partnership between Simon and PREIT — reported revenue of $34.9 million last year, down from $36.9 million in 2016, according to PREIT’s annual report.

While the mall doesn’t discuss specific numbers, Ferreira said turnover in a mall can generally lead to downtime and push some figures lower. One number that isn’t declining at Lehigh Valley Mall, according to Simon’s annual report, is its occupancy rate. Its figure of 98.8 percent within the mall concourse is up from a year earlier, when it was 97.7 percent.

Getting to that point is a testament to the mall’s ability to backfill tenants quickly even as it has lost mainstays such as Delia’s, Wet Seal and Bebe.

To fill the gaps, the mall has brought in tenants such as women’s retailer Love Culture, family-owned business Windsor and Torrid, the last of which will open within weeks in the former Bebe space and offer apparel, accessories and swimwear to women sized 10 to 30.

Many of the mall’s retailers, Ferreira said, are now more experiential. For example, Pocono Oil and Spice Co., which took over the space vacated by Teavana, allows customers to sample dozens of selections, from garlic cilantro and spicy mango dark balsamic vinegars to blood orange and Parmesan, garlic and rosemary olive oils.

The mall is even experimenting with the virtual world.

Virtual reality gaming facility VR Cafe opened at the mall last year, filling the space left by Wet Seal, Ferreira said. VR Cafe, which opened its first location at Palmer Park Mall in September 2016, also has a cafe bar alongside its booths where customers immerse themselves in 360-degree virtual worlds.

The mall also this year filled one of its largest vacancies in recent memory, when Bob’s Discount Furniture opened in a more than 30,000-square-foot space in the mall-owned outparcel along Grape Street that previously housed HHGregg.

“To have a space of 35,000 square feet, and we backfill it within six months with a really good tenant, I think that really means a lot,” Ferreira said.

But more challenges could be on the horizon — in fact, just a stone’s throw from Bob’s.

Babies R Us, in the same building as Bob’s and Guitar Center, could be the next space to fill. Going-out-of-business signs were posted in the store’s entrance on Friday, eight days after the retailer’s parent company, Toys R Us Inc., announced it would liquidate its remaining U.S. stores.

Meanwhile, Claire’s, known for its tween jewelry and ear piercing, filed for bankruptcy Monday. It has stores at Lehigh Valley Mall, South Mall, Palmer Park Mall and the Promenade Shops at Saucon Valley.

Some of Lehigh Valley Mall’s turnover is simply a result of its size and depth of merchandise, scale that leads Ferreira to call the shopping center “this area’s King of Prussia,” referring to Simon’s massive mall about 50 miles south in Montgomery County. With more than 150 stores, it’s not that unusual for Lehigh Valley Mall to house a national retailer that decides to downsize or close shop for good.

Continued reinvestment

Despite the turnover, retail expert Jeff Green, owner of Jeff Green Partners in Phoenix, said the mall’s $561 in sales per square foot is still strong, placing it as an A mall by that figure. Green estimated a further decline could occur after Christmas 2019 or early 2020, by which time Lehigh Valley Mall — and many other malls — could be transitioning from an A mall to a B mall, the latter of which has sales per square foot of $375-$550.

One area of potential concern, Green noted, is the mall’s reliance on department stores, a retail segment in decline that many analysts believe is in need of a reinvention. In addition, department stores are large footprint anchors in malls — spaces that aren’t easy to replace if and when they close.

For example, at Lehigh Valley Mall, Boscov’s space, leased through 2022, is nearly 165,000 square feet, while the Macy’s location, also leased through 2022, is 212,000 square feet, according to a PREIT public filing. Meanwhile, J.C. Penney owns its 207,292-square-foot store.

From Ferreira’s point of view, however, each of the three department stores offers a different type of merchandise and each caters to a specific kind of customer. In addition, he noted, it bodes well that neither Macy’s nor J.C. Penney has shuttered even as both chains have announced closures in recent years.

Green said Lehigh Valley Mall will still be the area’s dominant shopping center in the future even as retail headwinds continue to intensify. From a national perspective, Lehigh Valley Mall is considered a premier mall in a secondary market, a scenario Green said is preferable to being a secondary mall in a major market.

“Whether it be A or B+, it’ll still be the best mall in the [Lehigh Valley] market,” Green said.

In the future, Ferreira expects the mall will still be one retailers want to invest in. Starbucks and Express just finished remodeling their stores at the mall, while Swarovski is in the midst of construction.

Simon, as an operator, also has not hesitated to invest in good malls. For example, Simon opened a 155,000-square-foot expansion at King of Prussia Mall in August 2016 and, a little more than 10 years ago, opened a $40 million, 110,000-square-foot lifestyle center at Lehigh Valley Mall.

Even with the loss of J. Crew and the closure of Ann Taylor on Saturday, Ferreira said the lifestyle center is a strong performer, as those trying to park there can probably believe as they participate in a nonstop version of vehicular musical chairs.

The lifestyle center likely won’t be the last investment in Lehigh Valley Mall.

Since at least March 2016, the mall has been mulling an expansion on the 4.5-acre parcel at 1457 MacArthur Road, which hosts an office building, a Friendly’s and a former Wendy’s, the last of which recently moved to a newly constructed building at 2545 Mickley Ave.

Paul Gores/Milwaukee Journal Sentinel - If you want to illustrate just how much the brick-and-mortar retail landscape has changed, you could sum it up with this:

For the first time in more than 90 years, the Milwaukee metro area doesn’t have a full-line Sears department store.

The last Sears department store here closed a week ago at Brookfield Square.

Sears in Milwaukee dates to 1927, when it had a store at N. 21st St. and W. North Ave.

“It’s sad,” said Debi Damron, a 15-year Sears employee who rang up deeply discounted merchandise for customers at the Brookfield store on its final day in business last Sunday. “I can’t believe that they decided to pull completely out of a million-person city.”

Milwaukee isn’t alone.

Once the king of U.S. retailing, Sears has shuttered more than 300 stores in the last decade nationwide, including nine in Wisconsin, as shoppers have reduced visits to malls and are buying more online.

Sears also has been hurt by new retailers focused on a single category of what had been a department in Sears. Stores such as Home Depot and Ulta Beauty, for example, have scooped away market share from Sears' home improvement and cosmetics departments, respectively. At the same time, apparel retailers catering to every size and sense of fashion have popped up in storefronts all along the mall.

Today, Sears has fewer than 550 full-line department stores in the United States, down from 861 in 2007. Although some Sears stores that sell limited merchandise like appliances, hardware and mattresses still dot the Wisconsin map, only six full-line Sears department stores remain in the state. The closest to Milwaukee is in Janesville.

“It surprises me that a market your size doesn’t have a full-line Sears still operating, but that just means you’re ahead of the curve. It will happen elsewhere,” said retail industry consultant Jeff Green, of Jeff Green Partners in Phoenix.

The population of the Milwaukee metro area is just under 1.6 million.

Paul Gores talks about the the closing of the last Sears store in the Milwaukee area. Why it happened and what mall owners are hoping to replace it with.

The question for Milwaukee is, “Will Sears be missed?”

“I think some people will miss it. The Sears name, it’s a venerable name. I think of Sears and still think of the big thick catalog we used to get at Christmas and circle things we wanted,” said industry consultant Nick Egelanian, founder of SiteWorks Retail Real Estate Services in Annapolis, Md. “But I don’t think they’ll miss it from the standpoint of how they’re living their daily lives and how they’re consuming today. I think they’ll miss it more from a nostalgic standpoint — another kind of marker on the road that goes away.”

Consultant Dick Seesel, owner of Mequon-based Retailing in Focus, said the heyday for Sears came mostly in 1960s and ‘70s. The Sears store at Brookfield Square opened in 1967 as one of three anchors. The two other original anchors — J.C. Penney and Boston Store — still are there, although the parent company of Boston Store, Bon-Ton Stores Inc., filed for Chapter 11 bankruptcy in February.

“In the ‘70s when they started building their own shopping centers in some parts of the country, they were flying pretty high,” Seesel said of Sears. “But that was before there was Walmart. That was before there was Home Depot.”

'Everything under the sun'

Sears stood apart from other dry goods department stores in that it had almost everything a consumer might need.

“Sears was always all things to all people,” Seesel said. “They were selling appliances and lawn mowers and hardware and all sorts of things that were really meant to appeal to that customer moving to the suburbs.”

Seesel continued: “What happened long before Amazon is they started dealing with a lot of competition in various parts of their business. There was somebody like Home Depot able to chip away at Sears' market share in those kinds of businesses. You had Best Buy growing. You had a lot of category specialists in big box stores growing up that made that Sears model of everything under the sun under one roof somewhat obsolete.”

At the same time, he said, Walmart was on the march, starting in small towns and heading toward suburbia on its way to supplanting Sears as the world's largest retailer.

“It’s a pretty common theme in retail that two weak players, when they merge, don’t necessarily end up with one strong retailer, and that’s part of the story of Sears right now,” Seesel said.

In 2002, Sears bought classic clothing retailer Lands’ End, of Dodgeville, to create a store-within-a-store concept. But Sears Holdings spun off Lands' End as a separate company in 2014.

Transformation in progress

Annual revenue for Sears Holdings in 2017 was $16.7 billion, down 25% from 2016 and only a third of what it was in 2007. The company lost $383 million last year, an improvement from a $2.2 billion loss in 2016. It hasn’t posted a profit from continuing operations since 2010.

Sears says it’s in the midst of a transformation that includes more digital selling.

“We are making significant progress in our transformation as a company,” said Sears spokesman Larry Costello.

He said Sears has made progress toward a return to profitability, and has significantly expanded its “Shop Your Way” loyalty program. Costello noted the company’s partnership with Amazon, in which Sears' Kenmore appliances and DieHard brand products will be sold on Amazon.com, and pointed to the company’s new DieHard state-of-the-art auto centers in Texas and Michigan.

Sears sold its Craftsman hardware brand in 2017 to Stanley Black & Decker.

“This year, we built on the success of the smaller-format stores we opened in 2016 by opening several innovative new store formats across the U.S. that highlight the power of our company’s integrated retail capabilities,” Costello said. “The Sears Appliance & Mattress stores in Texas, Pennsylvania and Hawaii showcase two of our strongest categories, while blurring the lines between the traditional brick-and-mortar and online shopping experiences.”

Costello said that for competitive reasons, he couldn’t disclose whether a smaller Sears selling appliances and mattresses will be part of the redevelopment of the Brookfield Square space where Sears had stood.

Plans call for most of the Brookfield Sears building to be demolished. In its place will be a 41,000-square-foot BistroPlex, operated by Marcus Corp., and a 45,000-square-foot restaurant and entertainment center that includes WhirlyBall, a game in which teams of players in bumper cars use hand-held scoops to pass a ball to one another as they try to score by hitting a basketball-like target. The Brookfield Square WhirlyBall facility also will have laser tag and bowling.

Many shopping malls in the U.S. are redeveloping with restaurants and entertainment venues as fewer people shop at brick-and-mortar stores.

“The fact that there are redevelopment plans behind these Sears stores is a great thing for not only the mall developer, but also the consumer,” said consultant Green. “They are going to put in other uses that are more relevant to the consumers than Sears was.”

He added: “I don’t see anything that’s bad about it other than it’s a little bit jarring to see the changes that are occurring in the retail industry.”

Benjamin Romano/The Seattle Times - The retail model of car-centered shopping malls and large, multibrand stores continues to crumble, as the merging of digital and physical sales channels exacts its toll.

Northgate Mall owner Simon Property Group recently revealed plans to transform the 68-year-old shopping center, first developed in an age when people drove their cars for a day of efficient purchases. It now envisions a mixed-use development with offices, residences and open space alongside a reduced retail footprint.

Simon appears to be following a course set by other major mall owners as they face the reality of changing shopping patterns and a retail real-estate market that’s vastly oversupplied — more so with each passing week as national chains give up the ghost. Toys R Us said Thursday it was closing all of its stores — some 735 locations across the country — after it struggled to compete with Amazon, Walmart and Target, and declared bankruptcy.

Mall owner Westfield poured $1 billion into its Century City mall in Los Angeles, reopening it last fall as a destination for dining out, health care and personal services, outdoor events and concerts, and also shopping — though only half the mall will be focused on fashion, including a new Nordstrom, which relocated from another L.A.-area mall. That would be Westside Pavilion, whose owner, Hudson Pacific Properties, said earlier this month it would be redeveloped for offices.

“All malls are going to have to be redeveloped and redesigned,” said Ron Friedman, partner and co-leader of accounting firm Marcum’s retail and consumer products group. “The 1970s-, ’80s-, ’90s-look, it’s history. People don’t want to shop in them anywhere.”

For well-positioned property owners in growing markets like Seattle, this change represents a potential opportunity. Northgate, with its light-rail stop set to open in 2021, is 55 acres of transit-accessible space in a city bursting at the seams and hungry for homes and offices.

While Seattle-area malls have outperformed the national average in sales per square foot in recent years, Northgate’s sales have been among the lowest in the region, not including anchor stores, according to estimates from independent retail location analyst Jeff Green.

“Obviously Northgate is struggling, the stronger U Village gets,” he said, referring to the more upscale, self-styled “open-air lifestyle shopping center” four miles away.

Simon’s nascent Northgate plans indicate 500,000 to 750,000 square feet of ground-floor retail, compared with a million square feet at the historic mall now. (It was one of the first to use the term mall when it opened in 1950.)

“This is good news for Northgate Mall to ‘right-size’ its retail while at the same time bringing in other uses,” Green said. “It is a great site for that.”

What about other retail property owners? “They’re in trouble,” Friedman said.

Howard Schultz, Starbucks’ executive chairman, thinks so too.

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“We are at a major inflection point as landlords across the country will be forced (sooner than later) to permanently lower rent rates to adjust to the ‘new norm’ as a result of the acute shift (consumer behavior) away from traditional brick and mortar retailing to e-commerce,” Schultz said in a late-February memo to senior Starbucks executives.

He positioned this as good news for the coffee company as it looks to expand with new store formats.

On March 29, 157 Toys R Us stores — part of the first wave of closures announced earlier this year — will go up for auction. The company was paying lease rates ranging from $4.80 per square foot for a store in Albany, Georgia, to $26.62 for one in San Jose, according to a flierfrom the real-estate firm handling the liquidation of the toy seller’s real-estate assets. A Babies R Us in Spokane was leased for $6.65 a square foot.

But it’s not all bad news for physical retail. While many retailers are closing locations, others are opening them. A survey of 77 retailers by Forrester and the National Retail Federation’s digital division found that 43 percent expect to finish 2018 with a net increase in stores, while 16 percent expect their companies to have fewer. (But those stores that are added likely will employ fewer people. The same survey noted a strong interest in automation technologies that — if implemented successfully, which is a big if — would reduce the average number of employees per store.)

Simon has yet to fill in the specifics of its plans for Northgate, saying it would be “a several-year transformation of the property” including a lengthy review process with the city. But it looks, at least in concept, something like The Bellevue Collection, which is a cluster of buildings — including the 72-year-old Bellevue Square mall — with hotels, restaurants, movie theaters, apartments, and offices. And, yes, retail too. A similar mixed-use plan is taking shape at The Village at Totem Lake in Kirkland.

Developers would be able to build as tall as 95 feet in the Northgate neighborhood under the city’s plan to increase density in its urban villages.

“They’re going to build housing, high-rises, office space — all built around malls, so that people can live work and play in the same area,” Friedman said. “That’s the new mall.”

Dan Eaton/Columbus Business First - Mall retailers such as Abercrombie & Fitch and Gap and department stores including Sears and Macy’s draw a lot of the headlines, but the issue of shrinking physical store count is broad. It’s impacted big-box sellers such as HHGregg, now deceased, and Gander Mountain, which cut about one-third of its shops last year. It’s hitting strip center-based shops with smaller footprints, too – the largest number of closings last year came from Radioshack and Payless ShoeSource.

Benjamin Romano/The Seattle Times - PCC Community Markets, the regional chain of cooperatively owned organic-food stores, is joining the ranks of downtown grocers in a big way with a new location in the under-construction Rainier Square tower.

As in urban centers around the country, downtown Seattle’s residential population is growing, with developers building apartments and condominiums on top of and adjacent to the city’s office towers.

Residents of the downtown core have had few nearby choices for grocery shopping, but that’s been changing gradually over the last decade as stores follow people back into the city.

Another new grocer, H Mart, is on track to open downtown in the second half of this year.

PCC will be the anchor retail tenant on the ground floor of the 58-story Rainier Square project. With a mix of shops, restaurants, offices and apartments, it will be the city’s second-tallest building when it’s completed in mid-2020, according to the schedule of developer Wright Runstad.

In the floors above PCC, more than 3,500 employees of Amazon will toil for the retail and technology giant, which claimed all 722,000 square feet of office space in the project in one of the city’s largest leased deals, announced last fall. Above them, 188 high-end apartments are planned, part of more than 6,700 residential units under construction in the city’s downtown.

The development also includes a 12-story luxury hotel.

For PCC, in the midst of a growth spurt unequaled in the co-op’s 65-year history, the 20,000-square-foot downtown store plants a flag in a high-visibility spot in the city’s core.

“Because of the juxtaposition of tourism, theater, sports, daily workers, residents — it is a unique location,” said PCC CEO Cate Hardy. “We’re from Seattle, and downtown is the heart of Seattle.”

The boot-shaped Rainier Square skyscraper, with its combination of office and residential space, could be viewed as a microcosm of the broader transition happening in downtown.

More than 72,900 people live downtown, including close-in neighborhoods such as Uptown, South Lake Union and the west side of Capitol Hill, according to estimates from the Downtown Seattle Association (DSA). Almost four times that many work in the city core.

“Seattle is one of the strongest markets for new urban residential, because your economy is so good and because you’re a hub [for] young people who want to live downtown,” said Jeff Green, a retail-location analyst based in Phoenix. That’s what can make it viable for slim-margin grocers, who face higher rents and limited store footprints in dense city centers.

Hardy said PCC, with kitchens in each of its stores making scratch soups, salads and other hot and cold fare daily, is already doing a version of this at its Fremont store, serving a neighborhood that has grown dense with technology companies.

“We do a kickin’ lunch business five days a week over there,” she said. “I see the downtown store being a larger scale … more high-powered version of that exact same thing. More office workers, for sure, plenty of residents. We know how to do both.”

Green said walk-in traffic can offset the lack of parking at most urban grocery stores. Rainier Square will have a seven-story, 1,000-car below-ground garage with an undetermined number of free spaces available to PCC shoppers.

Customers can be expected to walk, on average, five blocks to get to a grocery store, Green said. Walk Score, a rating service of Seattle-based real-estate brokerage Redfin, awards maximum points for amenities that can be reached on foot within five minutes, a distance of about a quarter of a mile.

There are about 17,830 people living within a half mile of the planned PCC location, on Fourth Avenue between University and Union streets, according to the DSA. There will likely be more by the time it opens, given that nearly 2,500 residential units in the area are in some stage of development.

Green described a downtown grocery customer — “young, sophisticated, high-income … somebody who cares a lot about organics, supplements, vitamins” — who would seem to be a good fit with PCC’s target market. Through the first half of this decade, downtown’s affluent population — people earning more than $75,000 a year — grew 12 times faster than people earning less.

“Price is not going to be important,” Green said. “Quality is going to be important.”

Hardy expects shoppers to be drawn to PCC from farther away, including more densely populated downtown neighborhoods such as Pioneer Square and Belltown. “We believe we’re going to be the most convenient and by far the highest quality option that they have,” she said.

But PCC is not without competition for downtown shoppers’ grocery dollars. Whole Foods Market, among the first and largest, opened its store on Westlake Avenue in 2006. Kress IGA Supermarket set up two blocks from PCC’s new location on Third Avenue at Pike Street in 2008.

There are other players with long histories operating downtown or adjacent to it. Uwajimaya has been in its current Chinatown International District location on Fifth Avenue since 2000, but its presence in the city goes back generations. Smaller grocers and delis fill other niches.

And, of course, Pike Place Market is the longest-tenured downtown grocery purveyor.

For PCC the downtown store is one of five new or remodeled locations it plans to open in the next three years — including its Burien store, slated for May — a 50 percent increase.

“We aspire to be in all the neighborhoods in the Puget Sound region where we’d be welcome,” Hardy said. “The recognition for us is that downtown has been, and increasingly is, a neighborhood.”

Katie Burke/San Francisco Business Times - Morgan Stanley has enlisted Gensler to help transform the former Macy's men's store in Union Square into a retail magnet with six new stores, two floors of office and a restaurant at the rooftop level.

Kohl’s is still there and does well, but the impending loss of another anchor has the mall’s owner, Mason Asset Management of Great Neck, N.Y., mulling over the shopping center’s future.

“We are considering all options at this point,” Mason Asset President Elliot Nassim said Tuesday. “We are looking at all alternatives, whether it’s us redeveloping it, a sale or a joint venture.”

Nassim said the company still believes the mall is well-situated with a great location, on the border of Pohatcong and Lopatcong townships and near Interstate 78. But soon having two vacant anchor spaces, he said, creates an opportunity for redevelopment, a wide-ranging term that could mean a host of things at this point. Nassim confirmed one option could involve knocking it down and rebuilding, but it’s far too early to know what will ultimately happen to the mall.

“The value of Phillipsburg Mall is the ground on which it is located, not the physical asset of the mall itself,” Green said. “Its strategic location on the interstate makes it a valuable piece of real estate.”

The Phillipsburg Mall’s predicament is far from rare nowadays, especially at a time when click-and-order continues to chew up a larger portion of all retail sales. For one, the department store chains that have long called malls home are scaling back and closing underperforming locations in an effort to right-size their brick-and-mortar footprint while attempting to grow online sales. That trimming in a dramatically over-stored environment usually hits the smaller malls in secondary markets first, such as Phillipsburg Mall. One report, released last year by Credit Suisse, estimated between 20 to 25 percent of U.S. malls will close by 2022.

The Lehigh Valley and the surrounding area already have seen some of the changes.

Both Palmer Park and South Mall also were unloaded by PREIT, a company that has a strategy of weeding out the underperforming malls in its portfolio.

As for Phillipsburg Mall, it had a non-anchor occupancy rate of 66.1 percent and sales of $235 per square foot as of Sept. 30, 2012, one of the last public disclosures on the mall before PREIT sold it to Mason Asset, a company that has more than 90 properties across more than 20 states. Nassim did not have more updated figures handy Tuesday.

Suzette Parmley/The Philadelphia Inquirer - Speculation started last month that online juggernaut Amazon was considering Target Corp. for a takeover and adding “department store” to its list of conquests.

Last October, Amazon launched a pilot in 82 Kohl’s stores in Los Angeles and Chicago, where its customers can drop off online returns, which are shipped back to Amazon for free by Kohl’s employees.

“This is a great example of how Kohl’s and Amazon are leveraging each other’s strengths – the power of Kohl’s store portfolio and omni-channel capabilities, combined with the power of Amazon’s reach and loyal customer base,” said Richard Schepp, Kohl’s chief administrative officer, in a statement announcing the pilot partnership in September.

DREAMSTIME

Last fall, select Kohl’s stores began accepting Amazon returns and shipping them back for free. Some think Amazon is preparing to take over a department store. It acquired Whole Foods last year to get into the grocery sector.

Kohl’s also announced a new “Amazon smart home experience” where 10 of the 82 Kohl’s stores will enable customers to buy Amazon smart-home devices and services directly from the online giant. Amazon will become a store within a store inside Kohl’s.

Do these dual efforts signal some future hookup?

“I, too, think Amazon is seriously looking at the `department store` space,” said Phoenix-based retail consultant Jeff Green, who counsels major retailers on strategy. “Though Target has been the rumored Amazon target – and that could be a possibility – might they also be looking at Kohl’s, which would be much less expensive to acquire?”

Amazon’s ambition continues to amaze. It is forming a new company with Warren Buffett and JPMorgan to lower health-care costs of their employees, a move that shook up health-care stocks last week.

So making a play for a major department store such as a Target or Kohl’s – each with a huge customer base and more than 1,000 stores in the U.S. (Target 1,834 and Kohl’s 1,100 ) isn’t far-fetched, say analysts, especially as Amazon’s retail arms raceintensifies with Walmart, the nation’s largest land-based merchant with more than 4,600 U.S. stores alone.

While Amazon is expanding its brick-and-mortar firepower, Walmart has been on a buying spree of online companies, such as Jet.com and men’s clothier Bonobos, to help narrow the digital shopping gap with Amazon.

Some see Amazon’s pilot with Kohl’s as a prelude to more growth.

“It is a way for Amazon to provide more convenience for its customers,” said Moody’s senior retail analyst Charles O’Shea. “Amazon is trying to increase its brick-and-mortar position to better compete with Walmart, Target, etc., as U.S. retail sales remain heavily skewed toward brick-and-mortar at roughly 87 percent to 13 percent.”

AP

Retail experts think Amazon is eyeing a department store chain, such as a Target or Kohl’s, each with more than 1,000 stores, for its next acquisition.

The Amazon–Kohl’s pilot may lead the two companies to work more closely in the future, said Ben Conwell, head of Cushman and Wakefield’s eCommerce Advisory Group for the Americas.

“The store-within-a-store where Amazon employees are selling Amazon-branded goods, and the complementing Amazon returns acceptance pop-ups in-store by Kohl’s employees appear to be a win-win,” he said. “Kohl’s is enjoying the additional trafficdraw for both sales and returns. Amazon, in turn, enjoys the benefit of what could eventually grow to be 1,100 additional physical stores for use by both existing customers, as well as making Prime membership convenient for Kohl’s shoppers.”

Conwell knows a lot about Amazon. In his previous gig, he was Amazon’s head of North America logistics real estate. For four years he oversaw the expansion of 35 million square feet of Amazon fulfillment and transportation facilities.

“We should not be surprised if the initial pilot is expanded to considerably more locations,” Conwell said. “It is not beyond possibility that the relationship may expand to include offering Amazon order pick-up at Kohl’s locations. Kohl’s could offer Amazon up to twice as many additional physical pick-up points as it acquired with the Whole Foods acquisition.”

Successful retailers are using “physical locations to make customer pick-up more convenient and to minimize costly last-mile deliveries,” he said. Amazon could expand integration of services with more large physical retailers or make an even larger acquisition. “At just over $11 billion in market cap, Kohl’s trades today at less than the Whole Foods acquisition price.”

SUZETTE PARMLEY

A Kohl’s store in Langhorne. Amazon returns are now being accepted in select Kohl’s stores in Los Angeles and Chicago as part of a pilot program.

A sales clerk behind the online pickup counter at a Kohl’s in Bensalem said last week that the free Amazon returns program could be a harbinger of things to come.

“We don’t have it yet,” she said. “Depending on how well it does in California and Illinois, Pennsylvania and other states could get it, too.”

John Harris & Anthony Salamone/The Morning Call - Kutztown resident June Van Duren has remained a loyal Bon-Ton customer, often venturing to Trexlertown to shop even as the department store chain’s once-sprawling offerings began to dwindle in recent years.

“They just don’t carry the merchandise they used to have, the variety,” she said.

Her complaint is just one reason why Bon-Ton is struggling — and just one reason why the chain on Wednesday announced the locations of 42 stores it plans to close over the next few months as it tries to turn around its business.

The Trexlertown store, off Hamilton Boulevard, is one of eight that will close in Pennsylvania, a list that also includes the Bon-Ton at Stroud Mall in Stroudsburg. The beleaguered Phillipsburg Mall also will lose its Bon-Ton.

Van Duren, for one, wasn’t shocked when she heard the Trexlertown store will close.

“I will kind of miss it, but it doesn’t have the feel of vibrancy,” she said.

That’s putting it lightly. The Bon-Ton Stores Inc., the department store chain co-headquartered in York and Milwaukee, is loaded with about $1.1 billion in debt, has deteriorating sales and appears headed for a restructuring.

“As part of the comprehensive turnaround plan we announced in November, we are taking the next steps in our efforts to move forward with a more productive store footprint,” Bon-Ton President and CEO Bill Tracy said in a news release.

The Lehigh Valley was bound to be hit, especially when considering the large presence Bon-Ton has here because of its 1994 purchase of most of what remained of Hess’s Department Stores. Even after the closures are complete, Bon-Ton will still have four stores in the region: at South Mall in Salisbury Township; Westgate Mall in Bethlehem; Palmer Park Mall in Palmer Township; and Richland Plaza outside Quakertown.

Retail expert Jeff Green, owner of Jeff Green Partners in Phoenix, said Bon-Ton clearly had too many stores in a market the size of the Lehigh Valley. He also doesn’t think the closures are done.

In fact, in a filing Monday with the U.S. Securities and Exchange Commission, Bon-Ton disclosed a plan that suggests — in addition to closing the 42 stores — putting at least another 20 on a “watch list.”

As for the 42 closures announced Wednesday, closing sales will begin Thursday and run for about 10 to 12 weeks.

Bon-Ton spokeswoman Christine Hojnacki said the 42 stores together employ about 1,860 people, who will be offered the opportunity to interview for positions at other stores. A store-by-store employment breakdown was not provided.

Bon-Ton is closing two stores in the Lehigh Valley, including its location at the Phillipsburg Mall, shown here in February 2014.

In the Trexlertown store Wednesday, there was nothing posted about the liquidation sale. But the store saw a decent amount of activity, with one executive saying it had thrived on “day” customers. She declined further comment, referring questions to Hojnacki.

The departure of Bon-Ton will leave a sizable vacancy at the Trexlertown shopping center, referred to as Trexler Mall by owner Cedar Realty Trust. While Cedar Realty Trust’s corporate office in Port Washington, N.Y., did not return a call seeking comment, a brochure for the property indicates the space Bon-Ton leases measures 62,000 square feet — the center’s second-largest tenant after Kohl’s.

Meanwhile, at Phillipsburg Mall, the impending loss of Bon-Ton is just the latest blow. Sears in November announced it would close its department store there, a few years after J.C. Penney also pulled out of the mall. Mall owner Mason Asset Management of Great Neck, N.Y., did not return a call seeking comment. It was not known whether Bon-Ton leases or owns its space at Phillipsburg Mall.

The Bon-Ton stores slated for closure in Trexlertown and Phillipsburg are both in shopping centers that also have a Kohl’s. In an investor note Tuesday, analyst Randal Konik of the investment bank Jefferies suggested Kohl’s could be the biggest winner as Bon-Ton closes stores and restructures its fleet.

“Bon-Ton’s closures could be a cherry on top” for Kohl’s, Konik wrote in the note.

While the presence of Kohl’s in Trexlertown and Phillipsburg certainly didn’t help Bon-Ton stores there, retail expert Green believes the company’s decision came down to store performance and what it saw as the upside potential in each market.

In Trexlertown especially, the upside potential appeared limited — at least according to the observations of longtime Breinigsville resident Nelson Velez.

Velez said he noticed the Bon-Ton there appeared to be doing less business, and he pointed out its location in the shopping center between Kohl’s and Marshalls.

“I’m sorry to see it go, but they have to think of the bottom dollar,” Velez said.

In a filing Monday with the U.S. Securities and Exchange Commission, Bon-Ton said it is engaged in discussions with debtholders regarding potential restructuring alternatives.

While the company, co-headquartered in York and Milwaukee, noted there are no assurances it will reach an agreement, Bon-Ton disclosed in the filing a plan to turn around its business and boost its total revenue by about 5 percent to almost $2.7 billion by 2020.

The filing comes about two weeks after Bon-Ton announced it entered into forbearance agreements with its lenders after missing a $14 million interest payment in December. Those agreements, however, expired Friday and bankruptcy speculation has been swirling.

“Bon-Ton continues to work with our advisers and debtholders to evaluate potential options for the restructuring of the company’s balance sheet and other strategic alternatives,” the company said in a statement.

“At the same time, we are also focused on executing the merchandising, marketing, cost reduction and store rationalization initiatives that are part of the comprehensive turnaround plan for the business we outlined in November. We are committed to pursuing the path that we believe is in the best interests of the company and its stakeholders.”

The company’s turnaround plan, which covers 2018 through 2020, says a “clear opportunity exists to enhance Bon-Ton’s performance and regain ground lost due to recent challenges.”

The plan’s initiatives were developed from four major business areas: a review of the existing store portfolio; key retailing strategies in merchandising, planning and allocation; necessary changes in marketing; and capital investment strategies within stores.

Retail analysts repeatedly told The Morning Call the most likely outcome for Bon-Ton is bankruptcy. A term sheet included with the filing Monday indicates a restructuring could occur through an out-of-court transaction or through a Chapter 11 filing as soon as Sunday.

“To me, those are just Band-Aids,” retail expert Jeff Green, owner of Jeff Green Partners in Phoenix, said after hearing of Bon-Ton’s turnaround plans.

One issue for the company is, according to its plan, its store portfolio includes a “sizable portion of poorly performing stores that contribute minimal value to the organization.” So about 100 of the worst-performing stores — the company has 260 locations — were selected for a financial assessment.

And this year the company is planning 42 potential store closures and three possible store sales, including one clearance center. That strategy is consistent with Bon-Ton’s announcement in November, when it said it would close at least 40 locationsthrough 2018. In addition, the plan suggests there are at least another 20 stores that should be considered for a “watch list” so Bon-Ton can monitor for “signs of future deterioration.”

With fewer stores, the plan states there’s an opportunity to reduce the company’s distribution center footprint — from three to two facilities — by removing the facility in Fairborn, Ohio. Bon-Ton’s leased distribution center in Whitehall Township would appear to stay open under the plan.

It remains unclear whether any of the Bon-Ton stores in the Lehigh Valley will close this year. In the area, Bon-Ton has stores at South Mall in Salisbury Township, Westgate Mall in Bethlehem, Palmer Park Mall in Palmer Township, on Hamilton Boulevard in Trexlertown, and near Quakertown and Phillipsburg.

In terms of retail strategy, the plan aims to boost Bon-Ton’s share of e-commerce, a segment the department store chain is “significantly underpenetrated in.” Based on its current 2017 revenue projections, the plan explains increasing Bon-Ton’s e-commerce penetration to 20 percent — from its current 12 percent — would boost revenue by roughly $200 million.

To hit those marks, Bon-Ton will need to increase its product assortment online, improve its site navigation and boost its digital marketing, the plan states.

The plan also includes something the debt-laden department store chain hasn’t been able to do in quite some time: Carry out capital expenditures.

The filing shows proposed capital expenditures of about $51 million in 2018, $42 million in 2019 and $52 million in 2020. In each of those years, more than $20 million will go toward the chain’s stores, aiming to drive a unified look and feel, improve customer experience and strengthen the brand name.

The plan also states there is an opportunity to open new stores, as Bon-Ton’s closest competitors, such as Macy’s, focus on larger markets and leave gaps in smaller areas. The business plan considers 14 new store openings for Bon-Ton over a three-year period.

“Bon-Ton stores in markets where Macy’s closures have occurred have seen a meaningful uptick in performance,” the plan states.

Bon-Ton’s stock was trading at about 17 cents on the over-the-counter market Monday.

Jeff Shaw/Western Real Estate Business - When Gene Munster, managing partner of Minneapolis-based venture capital firm Loup Ventures, predicted that e-commerce giant Amazon (NASDAQ: AMZN) would buy department store chain Target (NYSE: TGT) this year, he knew such a declaration would make waves. In a New Year’s Day post on the Loup Ventures website titled “8 Tech Predictions for 2018,” Munster admitted it was his “boldest prediction.”

“Seeing the value of the combination is easy. Amazon believes the future of retail is a mix of mostly online and some offline,” wrote Munster. “Target is the ideal offline partner for Amazon for two reasons: shared demographics and a manageable-but-comprehensive store count.”

Business websites and magazines were quick to respond with skepticism, authoring headlines such as “Stop The Insanity Amazon Will Not Be Buying Target” (TheStreet), “Amazon Buying Target Isn’t as Likely as One Tech Analyst Seems to Think” (Adweek) and “No, Amazon Isn’t Buying Target in 2018” (Forbes).

Garrick Brown, vice president of retail research for the Americas with Cushman & Wakefield, says “the rumor’s been floating around for a while” that Amazon is looking to buy Target. He estimates the odds of the deal happening at between 25 percent and 33 percent.

Although he agrees that an Amazon-Target deal is possible, Brown is quick to note that much of the speculation is based on the faulty premise that Amazon’s purchase of Whole Foods means it’s interested in brick-and-mortar retail.

What Amazon is really interested in, according to Brown, is affordable buildings in urban locations to increase its capacity to deliver fresh groceries to online buyers. Industrial real estate in urban areas is too expensive to buy and upgrade, but existing retail locations can serve the same function, he believes.

“Amazon didn’t buy a grocery chain; it bought 462 e-grocery distribution facilities,” says Brown, referring to the company’s acquisition of Whole Foods Market. “As long as Amazon can do deliveries [from Whole Foods locations], the company solved its biggest problem, which was e-grocery fulfillment center space.”

The Giants Get Bigger

Part of what’s fueling speculation of a Target acquisition is that Amazon, Walmart and Target have been on acquisition sprees in recent months. Walmart and Target have sought to expand into online retail (Target agreed to buy same-day e-commerce delivery service Shipt in December for $550 million), while Amazon has invested in brick-and-mortar stores.

“In 2018 it may seem like a giant retail duopoly of Wal-Mart versus Amazon. The question is whether Target will become a third player in this,” adds Brown. “If Target is looking to become a third major omnichannel player, the easiest way to squash that competition is to simply buy them.”“It certainly is a shrinking retail universe,” says Green. “This is especially true as Walmart begins to buy specialty [online] retailers such as Bonobos, ModCloth, Moosejaw and Jet.com.”

Since Amazon already accounts for 45 percent of all e-commerce activity, according to Brown, the company could even be in danger of being broken up by government anti-trust rules.

“The idea that Amazon wants to corner the market is what’s fueling this speculation, and you can’t rule that out,” says Brown. “Is there a tipping point where Amazon has to worry about the government stepping in and breaking them up?”

M&A Activity Poised to Soar

Brown suggests that, regardless of whether Target sells or not, expect mergers and acquisitions activity in the retail space to be “through the roof” in 2018. Even though many retailers are performing well, the general concept of a struggling retail sector leads to depressed stock prices, which in turn leads to “an awful lot of undervalued retailers out there primed for acquisition.”

“We saw a bit of an uptick for some retail concepts over the holidays, but now we’re going into the traditional store closure season,” says Brown. “There are going to be some big and notable bankruptcies. The ‘retail apocalypse’ story is going to be back with a fury this year. When that happens, it hurts the whole retail sector.”

Target’s stock price peaked at $84.69 per share on July 17, 2015, and hit a five-year low of $50.76 on June 23, 2017. Shareholders enjoyed a rebound in the performance of the stock price leading into holiday shopping season, with the price closing at $67.17 per share on Wednesday, Jan. 3. The company’s market cap currently hovers around $36.5 billion.

Amazon, meanwhile, has seen a steady increase in its stock price over the company’s entire history, recording a record-high closing of $1,204.20 per share on Jan. 3 of this year. The company’s market cap is approximately $580.3 billion.

Other retailers that are prime targets for acquisition this year include Nordstrom and Macy’s, adds Brown.

“It remains to be seen if any of these theories make any sense, or if it is just analysts talking out of turn,” says Brown. “But it’s interesting cocktail party fodder, for sure.”

As pure-play retailers take to the streets, what are the site considerations?
At a time when more and more online retailers are successfully expanding to brick-and-mortar locations, it’s worth taking a moment to examine how those brands are approaching the site selection process. The specific and strategic considerations that online retailers review when assessing possible brick-and-mortar locations not only tells us a lot about what’s behind that thought process, but provides important hints about the priorities and perspectives shaping retailer behavior in an increasingly omnichannel world.

It shouldn’t surprise anyone that it all starts with the customer. The vast majority of online retailers moving into brick-and-mortar spaces appeal to a younger demographic (their success has been built in online and mobile, where shoppers tend to skew younger). With that in mind, decisions about where to begin taking a virtual business to physical storefronts boils down to two questions: where are those consumers living, and where are those customers shopping.

While the first question is fairly straightforward, the second is a little trickier. Fortunately, online retailers have a resource that many smaller brick-and-mortar retailers and startups don’t: a sophisticated understanding of who their customers are. This deep knowledge includes everything from where they live and what they buy, to surprisingly detailed consumer profiles. While supermarkets, drug stores, and other large retailers with robust customer loyalty programs collect similarly detailed customer origin data, online retailers can do so with relative ease—simply because of the realities of online shopping.

Those psychographic and demographic profiles make it possible for online retailers to glean enormous amounts of information from a simple ship-to address, and they also make site selection a more precise and targeted exercise. It’s all about the data– information that enables retailers to separate good locations from not-so-good options. And it’s clear that many online retailers have concluded that the right location for them is typically not “the mall.” Brands like Warby Parker, Athleta and Amazon Books have chosen their initial brick-and-mortar sites in locations calculated to appeal to younger shoppers.

Athleta has mostly chosen to take non-mall sites, either in lifestyle centers or street retail locations. Warby Parker is very focused on street retail, working to emphasize the brand’s destination status. Amazon Books’ first location was in University Village, an open-air lifestyle center in Seattle, and while its second is slated for a traditional mall location (Westfield UTC mall in San Diego), that store will be optimally positioned opposite an Apple store and next to a Tesla store.

While age and income play a role in site selection, perception is also a factor–specifically, the desire to be perceived as something different or special. And while demographic and psychographic data is useful, another important consideration for virtual retailers looking to plant their brick-and-mortar flag is the strength of their existing business in the market. Online retailers’ brick-and-mortar iterations consistently perform best in locations where they already have a strong online presence–and they are understandably leery of opening store locations in areas where they don’t have strong brand recognition. On one level this may seem a little counterintuitive, but strong brand recognition is the best way to establish brick-and-mortar traction, and initial forays into brick-and-mortar cannot afford to underperform.

Additionally, while some online retailers may have initially looked at brick-and-mortar as a novelty—or as a showcase for their online marketplace—they quickly recognized that boosting brand recognition from an established brick-and-mortar presence subsequently increases online sales. This creates a positive reinforcement loop, where multiple channels of distribution create a kind of 1+1=3 effect. Perhaps nobody knows that better than catalog retailers, which have a third channel to consider. One of the first retailers to leverage this strategy effectively was Talbot’s, which had a strong catalog business and made a point to open stores where catalog sales were highest. A more contemporary example is Sundance, currently rolling out the third leg of its multichannel operations by expanding into brick and mortar.

Ultimately, this speaks to a larger truth about today’s evolving retail marketplace: to be competitive, retailers must be effective multichannel operators. Creative relationships are forming between traditional and online retailers—cultivating new and different mechanisms for traditional retailers to establish their omnichannel credentials. I’ll explore those dynamics in my next column.

There has been a great deal of discussion and analysis in recent years regarding the ongoing struggles of many traditional department store giants. Brands like Sears, J.C. Penney and Macy’s are scratching and clawing to continue to stay afloat, together with a number of big-box retailers that are also struggling to remain competitive in an evolving retail marketplace.
As more and more department stores and big-box locations go dark, owners and developers are faced with large gaps in shopping centers that need filling. The challenge is not just making up for lost square footage, it is in accommodating large formats and suboptimal layouts, and finding uses and tenants that add something new to the existing center. There have been a number of solutions to replace these fallen giants – strategies that have met with varying degrees of success – from redevelopment and restructuring, to backfilling with new and emerging retail concepts. Perhaps to consider the best fit for today’s marketplace is to reflect on what past solutions have emerged successfully and, in some cases, not so successfully.

Regardless of the specific strategy, it’s clear that owners and developers need to think strategically and creatively about how to fill those large, open spaces in their centers. But is that happening? Are new options being put in place because they work, or because they are simply available?

I think the biggest issue isn’t about tenancy or square footage–it’s actually one of perspective. You can’t prescribe the right solutions if you don’t fully appreciate the nature of the problem.

To do that, we first need to trace the struggling department store trend to its origins. The way many talk about these issues, you might think this has all just popped up out of nowhere in the last few years. But the idea of a mall losing its anchors isn’t new. The reality is that what is taking place in the industry today is the culmination of developments that have been percolating for at least twenty years. Prior to the acceleration of the department store and big-box struggles we have seen in recent years, the last time the decades-long trend experienced a spike was the late 1990s and early 2000s, when an economic slowdown cranked the Darwinian vise that was already applying pressure to a few extra notches.

Examples of adaptive reuse that emerged in the wake of that trend include medical and educational uses, some of which were successful – like the addition of a new offsite campus for the Vanderbilt medical center on the second floor of the 100 Oaks Mall in Nashville, Tennessee – and others that didn’t work out – such as the attempt at adding a community college facility to the University Mall in Tampa, Florida.

Today, the industry is focused on looking at alternative retail and entertainment concepts, along with multifamily and hotel. But the “right” solution is about understanding what works for each specific shopping center. Some of the conventional wisdom today was barely on the radar just a few short years ago. Unfortunately, that’s a continuation of a long-term pattern that has plagued the industry: the next big thing comes along, everyone jumps on board until the bubble pops – and then on to the next next thing! History has taught us that we have to be extremely careful about evaluating an asset from a local and regional demand perspective.

While many centers that are losing anchors are turning to new experiential entertainment components, many of those concepts are unproven and may face their own issues adapting to social changes. These concepts are increasingly popular when it comes to filling these large available spaces. But will they bring new visitors? Will they get them to stay longer? And is it a cross shopping opportunity?

Knocking down a vacant anchor and replacing it with new restaurants and a selection of specialty retail has also worked–to a point. But even that can easily become oversaturated. Food uses are not a panacea for a mall – they have to be one of a number of strategies when it comes to potential redevelopment opportunities.

We tend to go from one potential fix to another in a very global sense, at times losing sight of on-the-ground elements that can and should play a critical role in decision-making. That’s not to say that any of the solutions discussed above can’t work – many can and will work very well – but each case has to be studied very carefully. Context is so critical. Understanding each individual market: what are the voids in the market–and how can you fill them? And that assessment needs to encompass not only the retail marketplace, but also the voids that exist in other commercial and residential segments.

Today, the retail real estate industry is doing what it always does: looking for an answer and searching for a formula. The reality is that there isn’t one–at least not a one-size-fits-all variety. Customers don’t shop that way. They only respond to what they want and need. When it comes to solutions, creativity and analytical rigor is key. However, when a mall is repositioned long term, it has to fit its market — taking into account everything from demographics to future growth potential and finally to the changes likely to occur in the retail consumer, both short and long-term.

Retailers and retail real estate developers need to avoid making the same mistake that the department stores they are replacing made–the mistake that contributed to their downfall in the first place: inflexibility, and an inability or unwillingness to adapt. The last thing you want to do is to solve a problem caused by a failure to abandon an outdated formula by being too formulaic.

Chris Lange/YAHOO! Finance - Ollie’s Bargain Outlet Holdings Inc. (OLLI) has filed an S-1 form with the U.S. Securities and Exchange Commission (SEC) regarding a secondary offering that it is now commencing. The company is not offering any shares, but the selling stock holders are putting up 6.5 million, with an overallotment option for an additional 975,000 shares. The most recent closing price was $21.26, which would value the entire offering at $158.9 million.

The company calls itself a “highly differentiated and fast-growing, extreme value retailer of brand name merchandise at drastically reduced prices.” It offers customers a broad selection of products, including housewares, food, books and stationery, bed and bath, floor coverings, toys and hardware.

The chairman, president and chief executive, Mark Butler, co-founded Ollie’s in 1982, based on the idea that “everyone in America loves a bargain.” From the time Butler assumed his current position as president and CEO in 2003, Ollie’s has grown from operating 28 stores in three states to 203 stores in 17 states, at the end of January 2016.

Ollie’s believes that there is opportunity for more than 950 Ollie’s locations across the United States, based on internal estimates and third party research conducted by Jeff Green Partners, a retail real estate feasibility consultant that provides market analysis and strategic planning and consulting services.

The company will not receive any proceeds from this offering. Instead the selling shareholders will receive all the proceeds.

Shares of Ollie’s were trading down 0.5% at $21.15 on Wednesday, with a consensus analyst price target of $22.17 and a 52-week trading range of $14.88 to $22.99.

Joel Groover/Shopping Centers Today - If the global real estate industry were to hold its own Top Buzzwords contest, the term “experiential” would surely be in the running. After all, landlords and retailers worldwide are keen on exploring new ways to create the kinds of brick-and-mortar destinations shoppers love to visit. Often the goal is to boost the amount of time shoppers linger by offering them trendy bars and restaurants, outdoor cafes, special events, personal services and the like.
But thanks to such factors as e-commerce and the near-ubiquity of smartphones, observers say, a practical imperative is increasingly in play as well — namely, the need to make the experience fast and hassle-free. “Convenience is the major driver of 21st-century shopping,” said consultant Paco Underhill, CEO and founder of Envirosell, a consumer-behavior research firm. “Even during the recession, if you asked people whether they felt more money-poor or time-poor, the answer was often time. That’s part of why we have so much mobile e-commerce today: It saves time.”

SCT asked several experts to share their thoughts on the opportunities and challenges associated with making malls and stores more convenient. The following articles explore a range of issues: convenience-oriented strategies like the use of technology to create “smarter” parking lots or faster checkout lines; the potential for easier-to-shop store formats to boost convenience across grocery, specialty apparel and other categories; and similar subjects.

To be sure, the subject is complex. Landlords and retailers should bear in mind that the proper role of convenience may vary widely among different stores and properties, according to consultant Nick A. Egelanian, president of Annapolis, Md.–based SiteWorks Retail. For commodity-oriented convenience stores, drugstores, grocers, big-box discounters and warehouse clubs, in particular, striking the right balance between price and convenience is critical, Egelanian says. “Customers are constantly making subconscious choices between price and convenience,” he said. “Let’s say you have a gas station sitting right in front of a Walmart. The gas station sells gum for a dollar a pack. The Walmart sells six packs of gum for a dollar. Why would anybody not go to the Walmart to buy gum? Because they value their time more than the price.”

By contrast, convenience tends to be less important for specialty-focused stores and malls, Egelanian says. In these environments, people feel more comfortable slowing down and spending their discretionary time and money. “A Simon mall really cannot compete on convenience,” he said. “What they are competing on is exclusivity of merchandise.” Nonetheless, amid gridlocked roads, overscheduled kids, longer work hours and other pressures of modern life, some mall owners should consider ramping up convenience for their time-pressed shoppers, Underhill says. According to the World Health Organization, about 54 percent of the global population now lives in cities, up from 34 percent in 1960. As cities continue to grow, malls stand to benefit by functioning as one-stop-shop destinations that make life easier, Underhill says. “It’s common for malls in Asia and Australia to have locksmiths, supermarkets, day-care centers, medical offices and gyms to help drive traffic,” he said. “In most U.S. malls, the focus is still on apparel and gifts, not these edge-city functions.”

THE CHECKOUT PROBLEM
Cash-register lines have always sparked complaints, and some want to eliminate the hassle altogetherRetailers and tech firms across the globe are working to make shopping as easy and convenient as possible by speeding up, or even doing away with, checkout lines. But the challenges here are not just technological: Banks and credit-card issuers also shape the payment process, and their focus tends to be on fighting fraud rather than boosting convenience, observers say.

Consider the global shift to chip-enabled credit cards. While the technology has been in wide use across the European Union for upwards of a decade, many U.S. retailers began accepting so-called smart credit cards only in 2015. Much to the consternation of some, this transition to a more secure payment technology slowed checkout lines just as the holiday season was getting under way. “The one thing you hear retailers talk about — and they have been talking about this since 1975 — is improving checkout,” said consultant Todd Werden, a vice president at Boston Retail Partners. “And what have we done to checkout? We just screwed it up.”

When all goes smoothly, the shopper inserts the chip card into the reader and waits for completion of the verification process before removing the card. This system takes longer to process than a swipe, however. Worse, at times a shopper will remove the card too soon, which forces the clerk to restart the transaction. In other cases, a consumer will dutifully insert the card into the reader only to be told to swipe as usual, because the POS system has yet to be upgraded to verify chips. “The amount of time it now takes to pay for something has gone up by a multiple,” Werden said.

In 2005 banks made smart cards the norm in the EU by forcing retailers to accept liability for any fraud perpetrated by means of the older, magnetic-stripe cards. A similar liability shift took effect in the U.S. last October. But though getting away from the older cards has caused headaches, a sharper focus on security should make it easier for retailers and tech firms to forge ahead with next-generation checkout systems, according to an American Banking Association statement submitted to a subcommittee of Congress.

Chip cards (sometimes referred to as EMV — for EuroPay, MasterCard and Visa, which originally developed the technology) are necessary in today’s era of hackers and data breaches, the American Banking Association noted in its statement. Other weapons in the fight against hackers include systems that encrypt payment data at all points of the transaction, as well as so-called tokenization technologies that replace account numbers with random digits at the point of sale; Apple Pay and Samsung Pay fall into this latter category. “In addition to today’s sophisticated neural networks, which spot fraud at the point of sale, these new technologies will be layered on top of EMV and create multiple dynamic layers of security necessary to fight increasingly sophisticated forms of fraud,” the association said in the statement.

Ultimately, technology holds -potential to eliminate what has always been the most inconvenient part of shopping: the checkout line, says Jeffrey S. Edison, a principal and the CEO of Phillips Edison & Co., which specializes in boosting the value of underperforming, grocery-anchored centers. “You’re going to be able to do it in real time,” he said. “There will be cameras all over the store that can tell what you pick up and put into your cart.” This is precisely the idea behind Atlanta-based NCR’s new whole-store scanner system, Edison notes. According to NCR’s U.S. patent application, “the process can be as simple as placing items in a cart, picking up an electronic or paper receipt and leaving the store.” The system can integrate with shoppers’ mobile-payment apps as well as retailers’ self-checkout units, which might still be needed for alcohol purchases or to weigh fresh produce, according to the patent application.

The new Fast Scan system being tested at several Texas stores by grocery chain HEB aims to speed up checkout rather than eliminate it altogether. Shoppers put items on the conveyer belt, which whooshes them past automatic bar-code scanners. This eliminates the need for shoppers or clerks to manually scan the items. “It’s like we’re living in the future,” said an HEB clerk in a YouTube video about the technology.

Given the near-universal adoption of smartphones today, mobile solutions represent another potential way to speed up the checkout process. Tech firms such as U.K.-based Powa Technologies, or Dashlane, which has offices in Paris and New York City, aim to expedite checkout by offering encrypted digital wallets and faster payment platforms. In one scenario, shoppers scan items with their phones as they walk through the stores, instead of waiting for clerks to do the scanning. “When I show up at checkout, my cellphone automatically downloads everything I just scanned,” Werden said. “I then use Apple Pay or something similar to complete the transaction, all on the phone. Within five years, we’ll see that kind of scenario routinely.”

PARKING SMARTER
Leveraging tech to take the headaches out of parking.
When Unibail-Rodamco opened the Mall of Scandinavia last November, an estimated 50,000 shoppers in Solna, Sweden, got their first look at the 1.1 million-square-foot mall’s experience-oriented architecture and tenant mix. The experience includes hundreds of shops and restaurants, along with entertainment venues such as an Imax movie theater and a Formula One racing simulator. Convenience, too, is part of the offering — the mall is the latest retail property to offer so-called smart parking, which can help shoppers find open parking spaces when they arrive, and then, when they are ready to go home, help them avoid the maddening experience of being unable to remember where the car is parked.

At Westfield’s newly redeveloped Valley Fair Mall, in Santa Clara, Calif., shoppers can find open spaces by looking for green lights positioned above. On the way out, they can type in their license plate numbers at a kiosk to see a visual representation of where they are parked (of course, the trick here is to remember one’s plate number). Along the same lines, two city-owned parking decks that serve Macerich’s Santa Monica (Calif.) Place mall guide shoppers to open spaces by means of sensors and lights; reader boards and end-of-aisle arrows point drivers to the number of open spaces in each direction.

Efforts to bolster the convenience of parking are strategically sound, given the potential for a stressful parking experience to linger in a shopper’s mind, observers say. “It is shocking, but the parking field really defines a lot of people’s feeling about convenience,” said Jeffrey S. Edison, a principal and the CEO of Phillips Edison & Co., which specializes in boosting the value of underperforming, grocery-anchored centers. “An extra 50 yards of walking will bother a lot of people. They will feel that it isn’t convenient anymore, even though you’re only talking about 15 or 20 seconds.”

Does this mean that every shopping center should buy expensive parking technology in a bid to stay competitive? Not necessarily, says Mark Braibanti, director of marketing and business development for Santa Monica–based ParkMe, a software and data company that specializes in smart parking. The company’s database of parking information includes some 29 million spaces across 64 countries, according to Braibanti. Some of the data is static, such as parking-garage addresses, hours, costs and similar fixed info. ParkMe also works with parking-facility operators, however, to obtain real-time occupancy data showing exactly how many spaces are available in a particular lot or deck. “If a parking garage or lot is ticketed or gated — meaning if someone has to pull a ticket to get in or out — we can tap directly into that information,” Braibanti said. “We have software integrations with all of the leading parking companies.”

ParkMe licenses this occupancy data to car companies, which funnel it to drivers’ onboard navigation systems and to parking software or app developers. ParkMe’s own consumer app and website leverage the information as well. “If I’m headed to a downtown Los Angeles shopping area, I can open the ParkMe app, see what lots are available, and even look for prompts like ‘Get two hours free if you shop at this store,’ ” Braibanti said. “If a lot is 80 percent full, we can show drivers that information before they get there.”

ParkMe users rave about being able to find or even reserve parking spaces in congested areas, Braibanti says. But in the future, the ongoing shift to “connected cars” — GPS-connected vehicles that can be tracked at all times — will make smart parking even more widespread, he says.

When most cars on the road are connected, ParkMe will be able to tap satellite feeds to supply car companies with real-time occupancy data even for unmanaged parking areas, Braibanti says. This would make smart parking viable even for a regional mall or power center with a large parking lot rather than a ticketed, structured deck. Because unmanaged parking is commonplace across the industry, connected cars will enable more landlords to do things like offer real-time occupancy maps of their parking fields on websites or apps, or reservations and similar smart-parking services — all without investing in expensive new hardware, Braibanti says. Over time, he predicts, smart-parking functionality will become something drivers simply expect to have as a standard feature of any vehicle. “We really feel like, with the future of transportation, smart parking is going to be fully integrated into your car’s navigation system.”

THINKING SMALLER
Ramping up convenience via smaller stores and showrooms.
In response to the fiscal crisis of 2008, many retailers focused on slashing prices in their existing stores or even launching off-price spinoffs. But another strategy — shrinking store formats and merchandise offerings in a bid to make shopping more convenient — is gaining ground around the globe, experts say. “When both Macy’s and Lord & Taylor have value concepts, you know value is saturated,” said Rachel Elias Wein, founder of WeinPlus, a consultant firm specializing in competitive strategies for real estate owners and retailers. “People have been trained to continuously get 50 or 40 percent off. The alternative is convenience.”

The trend is perhaps most visible in food retailing. According to an April 2015 Nielsen report titled The Future of Grocery: E-commerce, Digital Technology and Changing Shopping Preferences Around the World, consumers are shifting toward smaller, easier-to-shop grocery formats. The 33-page report uses data from surveys of 30,000 consumers across 60 countries and other Nielsen market research. “Across the globe, we’re seeing the rise of proximity retailing,” said Patrick Dodd, Nielsen’s president of global retail, in the report. “In the eyes of global shoppers, small and simple is beautiful right now. While there is some growth for large stores, the real winners are mini markets, small supermarkets and convenience stores.”

According to Nielsen, the growth of smaller-format stores tends to be strongest in developed economies. Nonetheless, the authors write, “convenience and drug stores demonstrate strong growth potential in both developed and developing markets, which underscores consumers’ desire to use brick-and-mortar stores for quick trips and special (often urgent) purchases.”

Whole Foods Market’s 365 by Whole Foods Market spinoff typifies this trend, according to consultant Paco Underhill, CEO and founder of Envirosell, a consumer-behavior research firm. The roughly 30,000-square-foot 365 by Whole Foods Market stores offer what Whole Foods says is a “curated” — meaning streamlined — product selection dominated by the chain’s 365 private-label brand. According to a press release, the company has signed eight leases for the smaller-format concept thus far, with the first stores opening this year and up to 10 additional ones set for next year. “In the United States, as in Europe, the fastest-growing chains are Aldi and Lidl,” Underhill said. “The idea is to have a smaller, curated store with your own branded products in it. Today people do not see house brands as a compromise. Part of what is driving the convenience factor is the recognition that we have reached the apogee of the big box.”

Cavernous stores filled with thousands of products can actually be inconvenient for some shoppers by requiring longer drives and overwhelming them with too many choices, says Jeff Green, who heads an eponymous retail consulting firm in Phoenix. By contrast, he says, smaller-format stores such as Trader Joe’s and Sprouts are all about a quicker and easier experience. Within the grocery industry, in fact, some even speculate about a future in which smaller stores supplant traditional supermarkets, according to Jeffrey S. Edison, a principal and the CEO of Phillips Edison & Co., which specializes in boosting the value of underperforming, grocery-anchored centers. “We’re not big believers in the model, but the idea is that the center of today’s supermarket will basically go away,” Edison said. “You’ll buy your Cheerios, Campbell’s Soup and other commodity items online, and then go to smaller-format stores to buy your perishables, prepared foods and meats.”

Fashion, electronics and other nonfood chains are also using so-called curated merchandise selections to make shopping more convenient, observers say. Wein cites British fashion retailer Ted Baker, which operates some 350 stores and concessions across 24 countries. “Ted Baker is my new -favorite store,” she said. “They have one of each size on the rack, with plenty more in the back for you. The customer service is fantastic, but the point is, you can breathe and see. It’s much more of a boutique experience.” By comparison, shopping at some department stores can seem like a chore, Wein says. “You walk through and the racks are just packed, with clothes falling off the hangers and onto the floor. If there are 10 places in a store where you can find a black skirt, that is not convenient for anyone.”

Though the specialty sector does not typically rely on convenience-oriented strategies, the showroom-style stores of such chains as Bonobos, Pirch, Restoration Hardware and Warby Parker highlight the potential benefits of making shopping easy by eliminating clutter, Wein says. Restoration Hardware’s new RH showrooms feature multiple floors of carefully arranged furniture, lighting and other home furnishings — all of it sold as delivery-only, with no backroom for inventory. “RH, the new Restoration Hardware format, truly looks like a home you would never want to leave,” Wein said. “Affluent shoppers — RH’s target customers — can walk in and say, ‘I want all of this.’ That’s convenient. Customers don’t have to run around town and deal with an interior designer. They can just walk in, love it and have it.”

Formerly online-only retailers like Bonobos and Warby Parker, in particular, are adept at running showrooms in ways that please the customer, says Green. “They’re already accustomed to delivering all of the merchandise,” he said. “We’re going to see this [showroom model] more and more as other online retailers go into the brick-and-mortar space.” Bonobos and Warby Parker take convenience a step further by focusing on personalized service as well, Green says. “Convenience is more than just your proximity to a store,” he said. “It’s also about how much interaction you have with the salesperson.”

The showroom model is certainly not appropriate for every retailer, cautions Jerry Hoffman, founder of Hoffman Strategy Group, an urban retail and integral-use consulting firm. “When people go shopping, they often still want to leave the store with their items,” Hoffman said, “but if you’re doing something like tailored clothing, then the showroom is a brilliant model.”

In adopting smaller store formats with fewer items on display, retailers also risk losing out on revenue from impulse purchases, notes Underhill. “Part of what we know is that in the grocery store and mass-merchandiser sectors, half of what we buy we had no intention of buying when we walked in the door,” he said. Even something as seemingly benign as removing clutter can, in some cases, carry unintended consequences, Underhill says. “If you stop somebody on the street or in the store and ask whether they like clutter,” Underhill said, “it is sort of like saying, ‘Do you beat your wife?’ The answer is always no. But research shows that once you take the clutter out, sales decline.”

In its own way, in other words, a “stack it high” merchandising approach can communicate messages about the balance between price and convenience at a given store. For Nick A. Egelanian, president of SiteWorks Retail, an Annapolis, Md.–based consultant firm, JCPenney’s failed reinvention is a cautionary tale about the need for such messages to be easily understood by consumers. “When Ron Johnson went to Penney [as CEO], he moved to everyday low prices trying to compete with the Walmarts and Targets of the world,” Egelanian said. “But Penney was never going to be as convenient as Walmart and Target, which are positioned much closer to the customer.”

Moreover, Egelanian observes, Johnson’s focus on bringing specialty store-in-store concepts to Penney sent a contradictory message — namely, that the chain aimed to focus on specialty retail, which is typically associated with higher prices. “Trying to be something that appeals to the discretionary income of the customer, that didn’t work, either,” Egelanian said. “If it doesn’t compute, you don’t go. Johnson confused customers, and they stopped going.”

Hoffman Strategy Group

Hoffman Strategy Group is an urban retail and integral use consulting firm. We provide insights to commercial property owners and developers on how much retail and other uses are supportable in a given market. Clarity is the currency of our craft. The more of it your business has, the clearer your course of action is toward success.